Colombia delays 4G ‪#spectrum‬ auction to Sept. Hopes to attract new players. So does everyone. Few achieve this. Incumbency counts.

It’s tragic really. Governments consistently say they want to attract new players to Latin American spectrum auctions. It rarely happens.

The last truly new player to enter via auction was probably VTR in Chile a few years back. Before that? Brazil Telecom? Colombia Telecom (now TIGO)?

I’m excluding Nextel International which got “mainstream” spectrum because in Mexico, Brazil and Argentina they already had an established brand, the same reason I’m excluding established players like America Movil and Telefonica when they enter new markets like Cost Rica.

I should add the Peruvian operator Viettel but that would be (correctly defined) “the exception that proves the rule” or perhaps the corollary of my theorem: those new operators that enter are failures.

VTR has taken two years to get going and so has Nextel in Chile. So long in fact that both companies are under investigation by the government for “wasting” their spectrum. Let’s not even discuss Viettel– too many years to launch, limited coverage, no chance to make an impact on the market etc.

I can understand the strategy completely: more operators should lead to greater competition and lower prices. There would be an argument that too much competition leads to lower levels of investment and less technological innovation. But frankly there are few concrete examples of this except perhaps India and the UK but there are many confounding factors like poorly organized spectrum (India) and a regulator who seems to be indifferent to the need for 4G spectrum (UK).

I can understand the statistical evidence that Latin American countries should be able to support more than three operators. Brazil has four plus Nextel. The Dominican Republic has four. Many emerging markets in Africa, Asia and Eastern Europe have four or more. But in the major markets of Latin America:

• Mexico and Argentina have three plus Nextel;
• Colombia has three plus an essentially irrelevant Avantel;
• Venezuela and Ecuador have three;
• Chile has three plus two that have barely launched after two years;
• Peru has only two plus the aforementioned Viettel.

Worse in economic terms in three of these countries with three or three plus Nextel, the leading operator has over 60% share (Mexico, Colombia, Ecuador). In Ecuador and Venezuela the third operator has small market share. Nowhere (at least so far) does Nextel have more than about 5% share.

What is going on and how can this be fixed?

I touched on this problem in Colombia in my recent note on Dominant Carrier Regulation: for most of these countries it is too late. Brazil has four relatively balanced operators because it started with a large number of operators distributed over multiple regions. It has four because that’s how far consolidation has gotten to date. The same is true of most of the other examples of multi-competitor markets: they have more than the average number of Latin American competitors because they started with many, many more and consolidated.

The Colombian market was doomed to consolidate to two because it started with two per region. It managed to add a third by essentially giving spectrum to two municipally-owned companies who proceeded to mess up completely and were forced to sell out cheap to Millicom.

Ecuador has a similar tale of woe, only the government telco still hasn’t sold out probably because no one would buy them. Mexico has three because they started with three. Likewise Argentina and Chile. Peru started with two, went to three briefly, then went back to two.

With penetration near 100% no multinational operator will convince their board to invest hundreds of millions of dollars trying to steal share from America Movil and Telefonica. No doubt we will see more Alegro’s and Colombia Movil’s — state-owned companies who have no idea what they are doing but have apparently infinite cash to waste on national champions.

Governments can declare their openness to new entrants all they want. They can fly to foreign capitals and woo multinational presidents. They can hold long dinners with the Chinese government and offer ridiculous terms. They can twist spectrum rules to favor new entrants.

At best they will get VTR — a year or two late but with enough brand strength that maybe they will make a dent in the existing operators’ hegemony. At worst they will get Viettel: an irrelevancy.

Its too late to get more viable operators.

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